June 11, 2024

Reviewing Mexican trade flows in light of Mexico’s recent presidential election

In a historic election, Claudia Shinebaum has been elected as the new president of Mexico. Her victory marks a significant milestone as the first female president of the nation. However, her policies, especially regarding energy, are generating considerable discussion and speculation within commodity markets. Let’s look into how Mexico’s crude oil exporters have behaved historically along with how the domestic market may shape future crude oil and refined product trade using Kpler’s data and analytics. 

Continuation of protectionist energy policies

Shinebaum is expected to continue the protectionist energy policies of her predecessor. This direction includes strong hints towards the nationalization of Mexico's energy sectors. Such a move is likely to occur gradually, but over time it could have profound implications for both domestic and international energy markets. Mexico is a large crude producer and exporter, ranking in the top fifteen, and especially in the western hemisphere it represents a large producing country. How the crude oil trade flow shifts will have implications for markets close to Mexico, as well as globally. Kpler’s data and analytics can reveal important insight into what is taking place in real-time to help market professionals navigate uncertainty.

Mexican crude trade flows in perspective

Across Kpler’s historical data, that dates back to 2008, the Mexican-U.S. crude trading relationship can be put into context. While there is some volatility, the U.S. remains the consistent recipient of the largest share of Mexican exported crude. Mexico has exported between ~500kbd - ~800kbd of crude per month over the last 15 years to the U.S. 

With Kpler’s platform we can observe that Mexico has been exporting a larger total amount of crude in May than either of the previous two months by close to 200 kbd. Recently, other destinations for Mexican crude have been South Korea and Spain, though they each represent about half of the U.S. export. 

Mexico's growing refining sector

Part of the goals of the government for the Mexican energy sector involve both modernizing domestic refineries, but also increasing the run rates in order to produce more product. In May Mexican refineries did not run at full capacity, a figure that can be seen with Kpler’s refineries intelligence which displays that Mexican capacity suffered from a 14 kbd offline capacity hit. 

As part of Shinebaum’s goals, she aims to reduce the amount of fuel oil production and increase the level of motor oils like gasoline and diesel. Kpler’s data shows that this trend has indeed been declining, when viewing bottom of the barrel production, as of May Mexico’s refineries were producing 66 kbd of heavier fuels.

In addition to producing less residual fuel oil, the administration will likely aim to increase overall refinery output specifically in gasoline and diesel. As Mexican refineries have capacity to raise their run rates, this seems a likely trend - especially given the ramp up of the Dos Bocas refinery. Indeed, refinery run rates can be seen rising with Kpler’s Supply & Demand model, having peaked recently in March 2024 at 1,017 kbd - and a predicted uptick in the third quarter as refineries continue to ramp. 

Shifts in crude exports

The likely increase in Mexican refining production also means a likely decrease in Mexican crude exports. Part of the reason that Mexican refineries produce less motor oil than might be desired by the Shinebaum administration is because much of the domestic crude, known as Maya, is a heavy sour crude. Due to its chemical properties, it is more challenging for the Mexican refiners to produce gasoline, for example. 

Maya typically ends up in the United States gulf coast, which Kpler’s data can show as part of the granular level of detail it provides customers. 

The U.S. Gulf Coast, also known as PADD 3 in industry terms, contains a large number of complex refineries that are able to process this heavier crude and produce product such as gasoline. This enables the U.S. refiners to enjoy greater cost margins as well, because this crude is able to be purchased at a discount, due to its lower profitability in Mexico itself. We can see below that Mexico is consistently the largest exporter of crude oil to PADD 3. 

What can be noticed now that Mexico aims to lower its crude exports, is that this is changing the market dynamic for U.S. importers in PADD 3. Kpler’s data shows that in the last month, PADD 3 importers have turned to Guyanese crude - a relatively new entrant to the global crude market and an important one to monitor in the coming years. Kpler shows that 3.06 MMbbl of Guyana crude was imported last month, representing the largest import to the area on record. 

While this quantity doesn’t yet represent a significant challenge to Mexican crude in the U.S. market - it certainly begins to raise some interest as Guyana continues to ramp its own production and represents a much closer partner for the U.S. than alternatives. As Mexico itself aims to continue ramping up its domestic refining capacity and PADD 3 ultimately loses a source of crude imports, how this future will play out in shaping prices and balances will change the dynamics of markets in North, Central and South America. Market observers can rest assured that they can navigate these volatile markets in real-time with data, analytics and insight from Kpler. 

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